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Thursday, May 27, 2010

EMV emerges in the U.S.

Responding to the wishes of members who travel internationally, the United Nations Federal Credit Union announced in May 2010 that it will become the first U.S. financial institution to issue Europay/MasterCard/Visa (EMV)-compliant chip cards. The organization partnered with digital security provider Gemalto to produce the microprocessor-embedded cards.

The UNFCU's membership is mostly comrpised of employees and retirees (and their relatives) of the United Nations and affiliated organizations – like the U.N. Foundation, U.N. Association and U.N. International School. Not surprisingly, many members are frequent travelers.

"We're very excited about the United Nations Federal Credit Union being the first to make EMV-compliant cards available in the United States," said Randy Vanderhoof, Executive Director of the Smart Card Alliance. "We expect other banks are going to be following very soon.

"There's a growing demand from consumers who travel outside the U.S. being inconvenienced by the fact that their existing credit cards are being rejected when they travel."

Slow to adopt

Vanderhoof said he anticipated UNFCU would be the first of many American institutions to roll out EMV-compliant cards, and that the United States would eventually convert to a full-fledged chip card system similar to the one used in Europe.

"This is a major breakthrough," he said. "The consensus up until now is it's too difficult and there's no consumer benefit to issuing EMV cards in the U.S., but that's changing … Banks that lag behind [in issuing chip cards] are going to find they lose a very significant and valuable customer, which are those that frequently travel outside the United States and spend a lot of money."

Vanderhoof believes market forces are aligning for the advancement of smart cards, since the cost of producing the cards has reduced and consumer demand is increasing.

Vanderhoof added that using mag stripe credit and debit cards in foreign countries has grown increasingly difficult and tedious. He said many unattended vending platforms in Europe (such as the automated ticket machines at train stations) take only EMV cards, and that some store clerks are reluctant to accept mag stripe cards for fear of fraud.

"The clerks are not trained to accept the mag stripe, and they assume it means that the card might be fraudulent," he said. "So they choose not to accept it even though technically they can."

Linda Mahy, President and Chief Executive Officer of Austin, Texas-based payments consultancy Connective IQ, said "it's about time" EMV cards were introduced in the United States, something that many payments industry professionals expected to happen years ago. She agreed that the full adoption of a system like EMV in the United States is "inevitable," but that the shift has been slowed by economic factors and inertia.

"We're about 20 years behind on EMV," Mahy said. "Fraudsters are accelerating our path to get there, but the economy the way it is and the cost it's going to take to reinvent the infrastructure makes it more difficult. We're a magnetic stripe-driven country, and a big one. You look at the cost of production for [magnetic stripe cards] and it's a couple dollars a card versus maybe $10 for a chip card, and that's big."

Wal-Mart out front

At least one major retailer is preparing for a possible shift to EMV cards in the United States: Wal-Mart Stores Inc, which has a history of spearheading the adoption of new payment methods.

The global discount retailer has installed the hardware necessary to accept EMV card payments at all of its U.S. locations, though it has yet to install the needed software. Vanderhoof said the software part will be easy, and that the retail chain can "download it whenever they're ready."

He added that Wal-Mart's decision anticipates that other U.S. issuing banks will soon start rolling out EMV cards. But Mahy said it is likely Wal-Mart itself would introduce EMV cards for use in its stores – many of which contain other businesses in addition to the retail segment, such as pizza restaurants, check cashing stores and health clinics.

"Why wouldn't they [issue the cards]?" she said. "They've got the basis to have multi-applications on their own chip card right within their four walls – and those are big walls. And God knows who they're talking to about putting new partners in their Wal-Mart franchise. If I'm Wal-Mart and I'm the issuer [of a chip-based payment card], I can put multiple applications on the card.

"I can put MoneyGram on there to do money transfer. Right at the point of sale I could send money to Mexico – all I'd need to do is walk into Wal-Mart. And then Wal-Mart can start having other franchises on the EMV card, so there's the optical store in Wal-Mart, the hair salon – I can actually have an application for each one of these boutiques in the Wal-Mart store." end of article

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